UPDATE 3-Azerbaijan imposes foreign currency controls to defend manat

* Azeri currency under severe pressure from low oil prices

* Country adopts some controls on forex outflows (Adds new information on tax breaks, details)

BAKU, Jan 19 (Reuters) - Azerbaijan imposed some limits on foreign currency outflows in a package of measures adopted by parliament on Tuesday to prop up the oil producer’s depreciating manat currency.

Rising prices for imported food have stirred protests rarely seen in a country where oil money and well-equipped security forces have long ensured public loyalty to President Ilham Aliyev.

The manat has lost about a third of its value against the dollar in the past month and the central bank has spent more than half its foreign currency reserves, which now stand at about $5 billion, trying to protect it from low oil prices. Oil and gas account for 75 percent of the state’s revenues.

Azerbaijan’s 10-year dollar bond, which matures in 2024, rose 0.45 cents to trade at 90.08 cents as the government sought to contain the crisis. The bond’s yield premium over safe-haven U.S. Treasuries narrowed 11 basis points to 582 bps.

Central bank chief Elman Rustamov said the government would impose limits on foreign currency outflows and introduce a 20 percent tax on currency exports related to direct investment, the purchase of real estate or securities abroad.

No limits would be imposed on currency exports related to education, medical treatment or outflows relating to court decisions, Rustamov told parliament’s economic policy committee.

He said between five and seven banks may have to merge.

Other measures would remove the insurance limit on deposits held in local banks and a 10 percent tax on interest paid on retail deposits from Feb. 1. Rustamov said the changes would be introduced for a three-year period.

Deposit insurance currently covers retail deposits of up to 30,000 manats ($18,700) with interest capped at 12 percent annually.

Some tax breaks were also agreed. Entrepreneurs importing equipment will pay no land, property or value added taxes or custom duties. Half their income will also be tax exempt for seven years.

Those measures are aimed at supporting businesses outside the oil sector, which will also get loans worth 250 million manats from the National Entrepreneurship Support Fund.

Rustamov said the central bank was also ready to discuss a proposal to allow private individuals to repay foreign currency loans at a rate of 1.05 manats per U.S. dollar. On Tuesday, the central bank set an exchange rate of 1.6028 manats per U.S. dollar. The rate was valid until Jan. 21.

The move may apply to loans of up to $5,000 and a total of 250 million manats would be needed to support the proposal, he said.

The central bank had already received requests to approve several mergers, he told reporters, saying international financial institutions had shown some interest in getting involved. There are 42 lenders with banking licences in Azerbaijan. (Writing by Margarita Antidze; Editing by Andrew Osborn and Ruth Pitchford)